Program gives grads more loan leeway

SEATTLE -- Thousands of college graduates across the country will be able to get some relief from their student-loan bills under a federal program that goes into effect Wednesday.

SEATTLE -- Thousands of college graduates across the country will be able to get some relief from their student-loan bills under a federal program that goes into effect Wednesday.

The Income Based Repayment program allows graduates to cap the total of their monthly loan repayments in a year at 15 percent of their total yearly income. The program will be particularly helpful to new graduates who have big loans and are entering a tough job market. For those with low incomes or children, required repayments are less -- and in some cases, nothing at all.

The program encompasses federal loans that account for about two-thirds of all student debt. Private loans taken out by students and federal loans taken out by parents do not qualify. If students are already in default on their loans, they won't qualify for the program, either.

Nationally, about 60 percent of students who earn a bachelor's degree borrow at least some money, according to the College Board. They graduate with an average of $23,000 in loans. On a 10-year loan, that equates to monthly payments of about $260. For graduate students, the loans are much bigger.

Under the new program, the monthly payments in a year would total less than 10 percent of yearly income for most of the estimated 1 million people expected to enroll, experts say. Payments would never total in excess of 15 percent of any income above about $16,000 a year. Those who earn less than $16,000 would not have to make any monthly payments.

One example: A graduate earning $30,000 a year would be required to pay a maximum of $172 a month toward student loans.

One significant downside of the new program is that some students may end up paying more over time. That's because by paying less each month, they will extend the life of their loan, adding to the total interest payments. And while unpaid interest is written off for the first three years, after that, in many cases, it's added to the loan balance.

The good news is that, under the program, anyone who makes their required minimum payments for 25 years will have any remaining loan balance written off. That can be reduced to 10 years for those working in public-service jobs -- including state or federal employees, nonprofit workers and public health workers.

The program is open to people who have existing loans as well as new graduates. To apply, people need to contact the lender who holds their student loan.

A calculator at www.ibrinfo.org can help borrowers determine their eligibility.